UK Production Eyed after BoE's Hawkish Surprise

The BoE was more hawkish than expected. Equities, UK production data, and Canadian jobs data are in focus.

Previous Day's Market Highlights

The Bank of England kept interest rates on hold, as was widely expected, and raised its economic growth and inflation projections. But the BoE surprised markets with a hawkish language shift, stating that interest rates may need to rise sooner and to a “greater extent” than had been thought in November. In recent months, markets have been expecting a November 2018 hike with building speculation of a move as soon as May. Now, expectations for a May hike have increased.
 
This adjustment saw sterling up over a cent against both the euro and the dollar, regaining the 1.14 and 1.40 levels, respectively. The pound also made gains against the commodity currencies, rising above 1.79 against the Aussie, 1.94 against the kiwi, and 1.76 against the Canadian dollar. However, sterling later retreated.    
 
The Aussie had weakened earlier in the day on a speech from RBA Governor Lowe. Lowe said that there isn’t a “strong case” for the RBA to raise rates, currently at 1.5%, in the near-term given progress to go in both jobs and inflation. Lowe also said that Friday’s updated forecasts would be largely unchanged from last quarter.
 
Equities had another volatile trading day and US stocks officially entered correction territory. The US government again shut down overnight, but the two-year budget bill has since been sent on to the House after being approved by the Senate earlier this morning.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1379 1.1512 1.1197 2.72%
GBP/USD 1.3978 1.4346 1.3537 5.64%
EUR/USD 1.2284 1.2538 1.2040 3.97%
GBP/AUD 1.7936 1.7861 1.7159 3.93%
GBP/NZD 1.9356 1.9466 1.8643 4.23%
GBP/CAD 1.7602 1.7646 1.6955 3.92%

Today's Market Highlights

The UK remains in focus with the release of December production figures this morning (09:30 GMT). With Manufacturing and Industrial Production forecast to have slowed in December, the pound could weaken.
 
Attention then turns to Canada’s January employment data in the afternoon (13:30 GMT). An increase in the Unemployment Rate and lower Net Employment Change could weaken the loonie.
 
MPC Member Cunliffe, who didn’t vote for November’s rate hike, speaks later today (16:45 GMT) at the Asset Management Derivatives Forum. Investors will watch for any clues as to his policy view following the more hawkish tone to yesterday’s BoE announcements.
 
Overall, the calendar is quieter today, which means that market movement may be calmer, and equities will remain in focus.
 
Highlights next week include UK and US CPI figures, the second estimate of Q4 Eurozone GDP, UK and US Retail Sales, and Australian jobs data.   

Today's Economic Calendar

Time Currency Release Consensus Previous
09:30 GBP Industrial Production YoY (Dec) 0.3% 2.5%
09:30 GBP Industrial Production MoM (Dec) -0.9% 0.4%
09:30 GBP Manufacturing Production YoY (Dec) 1.2% 3.5%
09:30 GBP Manufacturing Production MoM (Dec) 0.3% 0.4%
09:30 GBP Total Trade Balance (Dec) £-2.400B £-2.804B
13:00 GBP NIESR GDP Estimate 3M (Jan) 0.3% 0.6%
13:30 CAD Unemployment Rate (Jan) 5.8% 5.7%
13:30 CAD Participation Rate (Jan) 65.7% 65.8%
13:30 CAD Net Change in Employment (Jan) 10.0K 78.6K
16:45 GBP MPC Member Cunliffe Speaks

Caxton